The Pax5 gene, coding for the transcription factor BSAP, was mutated in the mouse germline by targeted disruption. Homozygous mutant mice were born alive, became growth retarded, and usually died within three weeks. About 5% of mutants survived to adulthood and were fertile, but severely runted. Morphogenesis of the posterior midbrain was affected as early as embryonic day 16.5, leading to a reduction of the inferior colliculus near the midline and to altered foliation of the anterior cerebellum. Moreover, all mutants failed to produce small pre-B, B, and plasma cells owing to a complete arrest of B cell development at an early precursor stage. These data define a key role for Pax5 in early B lymphopoiesis and midbrain patterning.